And so, are the returns from the PMS fund great, good enough or bad? If you are invested in Marcellus CCP fund, the net value of your portfolio in CCP depends on when you started investing in the fund and the type of fee structure you opted for.

The year of inception for their flagship PMS fund Consistent Compounders Portfolio (CCP) at Marcellus was 1 Dec 2018 and by Nov 2022 they have completed four eventful calendar year (CY) of operations. The the 18.64% CAGR is since inception and as on 30 Nov 2022 ie four years; the absolute return is 98.2%. The performance figure is net of fixed fees, operating expenses and performance fees charged to client accounts whose performance fees calculation date falls within the performance period. Meanwhile, the benchmark Nifty 50 TRI has delivered 16% CAGR; indicating an overperformance by the fund considering an investment horizon of four years.

With 2019 being the teething year for CCP, many clients would have come aboard in the subsequent years. If you invested in 2020 ie for the last three years, the CCP fund’s return would be 16.25% CAGR slightly trailing behind the benchmark return of 17.26% and the return figures in client accounts’ going forward with even shorter investment time horizons are either bordering on negative or trailing the benchmark. And this was the last question asked at the investor meet in Bangalore on 21 Dec 2022; the clients who invested in the PMS fund in the past three years are yet to see profits in their portfolios and when are they going to see the green?

The general mood in the conference room was sombre as the Marcellus fund managers presented the performance overview of CCP and their other PMS offerings – Kings of Capital Portfolio (PMS fund focusing on the financial services sector), Rising Giants Portfolio (mid cap PMS fund) and Little Champs Portfolio (small cap PMS fund). A few marquee names from Marcellus were absent in this round of investor meet as compared to the last time they were in Bangalore for the road show in Sep 2022.

Next is the fee structure question – CCP has three offerings for fees – fixed only, hybrid and variable only. To start with you have the Regular mode, which you invest via a distributor and the Direct mode, wherein there is no middle person. First up, the fixed expenses are higher in the regular mode as compared to the direct mode.

In the fixed only fee option, it is 2% fixed fees p.a for the regular mode and 1.5% p.a for the direct mode; while in the hybrid fee option, it is 1% fixed fees p.a for the regular mode and 0.75% p.a for the direct mode. The performance fees in both modes of investment remains the same. In the hybrid fee option, the performance fees is 15% of the profit above hurdle rate of 12%, no catch up and subject to high watermark. And in the variable only fee option, the performance fees is 20% of the profit share above a hurdle rate of 8%, no catch up and subject to high watermark. The performance fees is charged to the client account on a yearly basis.

Now while opting for the fixed only fees option you intend to keep all the profits in the portfolio to yourself and part only with a small fixed sum payable to the fund house, sounds prudent, but only when the profits do come by. Alternatively, you are paying a recurring fixed fee albeit a small amount to the fund house during the all the invested years quarter on quarter and if there are no profits being made, the recurring fixed fees eats away into the invested capital. And so the negative returns during the periods of underperformance becomes even more pronounced in client portfolios in the fixed only fee payment option.

In the variable fee option, there is no recurring fees charged to the client account on a regular basis and hence no erosion of capital; the fund house gets to charge the client account only if the returns exceed the 8% hurdle rate; but then they shave off 20% of the profits above the 8% and this will lower the overall return. Is an 8% hurdle rate high enough?

Next is the hybrid fee option, wherein the fixed fees in 1% for regular mode and 0.75% for direct mode; the performance fees has a higher hurdle rate of 12% and they share only 15% of the profits.

The fee option you choose has a definite bearing on your portfolio’s overall return esp. in a PMS offering and as of now those who have opted for a variable or hybrid fee option in CCP seems to be better off in the current performance scenario.

In addition to the fixed fees and the performance fees; there are the recurring charges labelled as operating expenses and includes brokerage and transaction charges, depository fees, RTA fees, account opening charges and so on, charged to the client account. As a thumb rule, the operating expenses can be anywhere between 0.5% to 1% p.a of the AUM payable monthly/ quarterly. These are inevitable charges and also there are the incidental charges such as capital gains tax on account of portfolio churn which have to be borne by the client separately at the financial year end and not redeemed from the portfolio itself. Hence the churn in the portfolio while generating alpha also has a bearing on the net profits for the investor.

All these charges point out to the minimum return expectation set from a PMS fund; 20% CAGR and only then can the investor reap any tangible benefit in terms of profits from investing in a PMS offering net of expenses, taxes and also for the uncertainty during the initial years. Any return above 20% CAGR is a bonus and definitely something to cheer about.

And so currently at 18% CAGR for four years from CCP does beat its benchmark, the Nifty 50 TRI but falls short the 20% expectation and definitely masks the high volatility in returns as shared by the fund house for the financial years and calendar years. But equity investing is about long term and and the runway is still long ahead for the fund; 2023 should be a make or break year for CCP and the investors are keenly watching !

Years	Marcellus CCP	Nifty 50 TRI
Calendar Years
CY 19	27.4%	13.5%
CY 20	33.7%	16.1%
CY 21	20.6%	25.6%
CY 22 YTD	-5.3%	9.5%
Financial Years
FY 20	7.6%	-25.0%
FY 21	50.2%	72.5%
FY 22	14.7%	20.3%
FY 23 YTD	1.8%	8.6%